Down Payment Assistance Programs | Explained

Why are my Realtor Partners Are Selling More Homes in 2018 than their competition?

 

Imagine if you were able to provide your clients with a Down Payment Program that provides:

  • More Money than IHDA | up to $20,000
  • Lower Rates
  • Lower Fees
  • Lower Credit Score requirements
  • No Repayment required or a MAX of 3 Years VS 5 Years

Here is a description of the DAP that is putting my Realtor Partners Buyers into Homes at the pace of 1 a DAY!!

Down Payment Assistance Programs

 

FHA & VA   3%  & 4%   USDA  3% MAX  DAP

  • 620 score
  • Do NOT have to be 1st Time Homebuyer
  • Non/occupant borrowers:  Not allowed
  • income limits   140% of Area Median Income (AMI)  https://www.huduser.gov/portal/datasets/il.html
  • Non/occupant borrowers:  Not allowed
  • 50% MAX Debt Ratio
  • max 6% seller concessions
  • Owner Occupied Only
  • Gift Funds allowed

 

Conventional 4% & 5% DAP

Power Purchase 2% Grant

  • 620 score
  • income can NOT exceed Freddie Mac income limitations  http://www.freddiemac.com/homepossible/eligibility.html
  • Do NOT have to be 1st Time Homebuyer
  • Non/occupant borrowers:  Not allowed
  • Owner Occupied Only
  • Gift Funds allowed
  • Freddie Mac Home Possible Advantage underwriting
  • 3% MAx Seller contribution

 

Visit me on the Web:   WWW.TheMortgageUpdate.net

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Top 3 Questions week of Sept 9th 2018

Top 3 Questions that I was asked by Clients this week:

  1. Credit Score:   What Score is used and what is the Min Score needed to buy a home?
  2. Can you use Social Security Income to qualify for a Mortgage?
  3. How much are Closing Costs to get a Mortgage?

 

CREDIT SCORE:

This is probably the most asked question I receive on a weekly basis.  Unfortunately, there is so much INACCURATE information out there on the web and from people proclaiming themselves as experts that it makes it even harder to get the TRUTH about Credit Scores.  So instead of sitting back and watching people ruin their credit, even more, I decided to take action and actually DO SOMETHING about it.  So I developed www.CreditScoresandMore.com:

At www.CreditScoresandMore.com you can access your TRUE Credit Score that your Lender will use.  No matter if you’re looking for your Credit Card Score, Mortgage Credit Score, Insurance Credit Score or your Auto Credit Score you can find it at CreditScoresandMore:

What is the minimum Credit Score needed to qualify for a Mortgage?  Great question and the answer is:  It Depends.

It Depends on who you call.  If you call one of the Big Banks they will most likely advise you that you need a 620-640 Credit Score.  However, there is good news,  FHA Mortgage Loans only require a 580 Credit Score, but you will have to find a Mortgage Lender who will accept Credit Scores down to 580.  So if you have been turned down for a Mortgage Loan please don’t lose hope there may be a solution for you out there.  I have been able to help thousands of people buy a home even after they were turned down by one of the BIG BANKS.

WHY?   OVERLAYS:

Social Security Income to qualify for a Mortgage:

I received a call a few weeks ago from a young lady looking to purchase a home with her mother.  She advised me that she would be applying for the loan by herself because she was told her mother could not be on the loan because her only source of income is from Social Security.  I paused and had her repeat herself.  Then I stated that not only can she use the income but she can multiply her monthly Social Security income by 115% when qualifying for a mortgage.  This not only allowed this young lady and her mother qualify for a Mortgage it also allowed them to qualify for a Grant loan that provided them with 5% of the loan amount for Down Payment Assistance.  How much are Closing Costs to get a Mortgage?

 

How much are Closing Costs to get a Mortgage?

This SHOULD BE one of the BIGGEST FACTORS when deciding on a mortgage especially if you looking to BUY a home.  This question has to be broken down into TWO areas and depends if you’re refinancing a Mortgage or Buying a home:   Then let’s break it down even further:  What are the Costs for the Loan portion of the transaction and what are the Costs for the Legal side of the equation:

Loan portion:   Here is what you typically see when applying for a Mortgage:

 

  • Application Fee: This fee covers the cost for the lender to process your application. Before submitting an application, ask your lender what this fee covers. It can often include things like a credit check for your credit score or appraisal as well. Not all lenders charge an application fee, and it can often be negotiated.
  • Appraisal: This is paid to the appraisal company to confirm the fair market value of the home.
  • Credit Report: A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.
  • Origination Fee: This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.
  • Underwriting Fee: This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
  • Loan Discount Points: “Points” are prepaid interest. One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.

Legal portion:    Here is what you typically see when Closing on a Mortgage:

 

  • Attorney Fee: This pays for an attorney to review the closing documents on behalf of the buyer or the lender. This is not required in all states.
  • Closing Fee or Escrow Fee: This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
  • Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
  • Escrow Deposit for Property Taxes & Mortgage Insurance: Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
  • Lender’s Policy Title Insurance: This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.
  • Property Tax: Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Recording Fees: A fee charged by your local recording office, usually city or county, for the recording of public land records.
  • Survey Fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property.  This is not required in all states.
  • Title Company Title Search or Exam Fee: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
  • Transfer Taxes: This is the tax paid when the title passes from seller to buyer.

When it comes to these costs its pays to SHOP:

Average Closing Costs on a Home Loan

Bank of America Chase Citibank Wells Fargo Average
Lender Fees $2,694 $595 $1,263 $995 $1,387
Third-Party Fees $2,931 $2,675 $2,134 $2,610 $2,819
Taxes and Prepaids $3,038 $2,710 $2,988 $3,227 $3,021
TOTAL $8,663 $5,980 $6,385 $6,832 $7,227

Why do I strongly suggest Shopping around?

My Average client pays less than $500 for my services (not including Legal fees).  When purchasing a home the Sellers attorney customarily handles the legal portion of the transaction and therefore I have no control over what the charges will be.  However I, do have a BIG INFLUENCE on how much the costs will be for the Mortgage portion of the transaction.

Common Questions For First-Time Home Buyers

Now that you have decided to buy your First Home your wondering what to do to get the process started.  The best recommendation I can make is to find a Professional Mortgage Broker as well as a Full-Time Realtor who knows the area that you are interested in living.  These are very exciting times but can be a lengthy process and also frustrating.  You should be familiar with the terminology and also what each party in the transaction is responsible for.

THE MORTGAGE:

This process can be confusing and also very expensive if you’re not very CAREFUL:

Let’s walk through the MOST COMMON QUESTIONS First-Time Home Buyers should know the answer to:

  • What it means to be pre-approved or pre-qualified.
  • What Mortgage best fits your needs and unique situation.
  • What is your Credit Score?  The actual Score your Lender will use.
  • How much money will you need for the down payment
  • How much money will you need at the closing
  • How long does all of this take

Pre-Qualified and Pre-Approved:

You’ve likely heard the term “pre-qualification” used interchangeably with pre-approval, but they are not one and the same. With a pre-qualification, you provide an overview of your finances, income, and debts to a mortgage lender who then gives you an estimated loan amount. However, the lender doesn’t pull your credit reports or verify your financial information. Accordingly, pre-qualification is a helpful starting point to determine what you can afford but carries no weight when you make offers.

On the other hand, a pre-approval involves filling out a mortgage application and providing your Social Security number, so a lender can do a hard credit check. A hard credit check is triggered when you apply for a mortgage and a lender pulls your credit report and credit score to assess your creditworthiness before making a decision to lend you money. These checks are recorded on your credit report and can impact your credit score. On the other hand, a soft credit check is when you pull your credit yourself, or when a credit card company or lender pre-approves you for an offer without you asking.

Also, you’ll list all of your bank account information, assets, debts, income and employment history, past addresses, and other key details for a lender to verify. Why? Above all, a lender wants to ensure you have the ability to repay your loan. Lenders also use the provided information to calculate your debt-to-income and loan-to-value ratios, which are important factors in determining the interest rate and ideal loan type.

What Mortgage best fits your needs and unique situation.

Conventional 

A conventional mortgage refers to a loan that is not insured or guaranteed by the federal government. A conventional, or conforming, mortgage adheres to the guidelines set by Fannie Mae and Freddie Mac. It may have either a fixed or adjustable rate. The maximum limit for a conforming loan depends on the county and state you live in and can be found here: Fannie Mae Loan Limits.

FHA

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.

The FHA program was created in response to the rash of foreclosures and defaults that happened in the 1930s; to provide mortgage lenders with adequate insurance, and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially for first-time home buyers.

VA

A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). … The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment.

USDA

The USDA Loan program is a no-down-payment mortgage loan offered by the United States Department of Agriculture Rural Development. They partner with approved local lenders to extend 100% financing opportunities to eligible families living in rural areas for the purchase of a home. While areas that qualify for USDA loans are typically defined as “rural,” many smaller communities that lie just outside major metropolitan areas can qualify. The USDA program is commonly used in towns with a population of 25,000 or less.

Jumbo

Another name for a jumbo mortgage is a non-conforming mortgage. This is a loan a lender makes you that does not “conform” to the guidelines of Fannie Mae and Freddie Mac. Created by Congress in 1938 and 1970 respectively, Fannie Mae and Freddie Mac provide stability and affordability to the mortgage market by buying “conforming” mortgages from lenders, which gives lenders liquidity to make more mortgages.

What is your Credit Score?  The actual Score your Lender will use.

The Best way to find out your credit score is by going to CreditScoresandMore:  This website will walk you through STEPS to help you obtain a FREE Credit Score and also your TRUE CREDIT SCORE this is the credit score that your Mortgage Lender will most likely use.

How much money will you need for the down payment

 

How much money will you need at the closing

 

How long does all of this take

This is a tough question.  Many Mortgage lenders require 45-60 to close on your loan.  Personally, I ask my Realtors to give me 30 days and in the majority of my loans, they close on time.  Unless you get into unexpected issues you should be able to close on your home within 45 days.

10 Most Important Steps You Need To Know When Buying a Home

The 10 STEPS in the Home Buying Process

The 10 STEPS:

  1. Mortgage
  2. Credit
  3. Costs
  4. Documents Needed
  5. Down Payment
  6. Inspection
  7. Appraisal
  8. Time Frame
  9. Title Insurance
  10. Closing

Mortgage:

  • Unless you have the CASH to purchase the home you will need a Mortgage.  Finding the BEST Mortgage can be as challenging as it is to find the Home of your dream.  The BEST option in this are would be to seek a Credible Mortgage Broker.  Why a Mortgage Broker?  In studies, it was found that Mortgage Brokers can offer the Best Rates with the Lowest costs.  Mortgage Brokers also have more options than traditional banks.  Do your Homework during this process because it can save you a lot of grief as well as money.

 

Credit:

  • Your Credit Score is one of the BIGGEST factors when it comes to getting Approved for a Mortgage as well as determining your Interest Rate.  There are over 20 variations of Credit Scores that most people do not realize.  I created www.CreditScoresandMore.Com to explain Credit Scores and advice on how to get a Free Credit Score as well as Credit Counseling and Repair.

Costs:

  • The cost of your mortgage depends on your credit score, the type of loan you choose, and the fees and other closing costs charged by your lender.  Here is a breakdown of the Average Closing Costs in Illinois:
Illinois closing costs
Origination fees charged by lender $1,085
Third-party fee $1,237
Taxes $610
Total $2,933
City Chicago
Loan amount $200,000
Itemized origination fees charged by the lender
Origination points $386
Commitment fee $370
Document preparation $58
Broker, originator or lender $868
Processing $857
Tax service $81
Underwriting $525
Itemized third-party fees
Appraisal $448
Attorney, closing or settlement $512
Credit report $25
Flood certification $10
Postage/courier $100
Survey $463
Taxes
Borrower’s share of state and local transfer taxes and fees $1,875
Mortgage tax $0
  • Many of these Fees can be eliminated by choosing to work with a Mortgage Broker:  For Example, I am a Mortgage broker in Chicago and Fees that we do NOT charge our clients from the above list are:  Origination Points:$386   Commitment Fee:$370  Document Preparation:$58  Broker:$868   Processing:$857 Underwriting:$525

My clients save on average $3,064 because I do not Charge these Fees

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Documents Needed:

Depending on your situation, here are seven documents you may need when applying for a Mortgage

  • Tax returns. Mortgage lenders want to get the full story of your financial situation. …
  • Pay stubs, W-2s or other proof of income. …
  • Bank statements and other assets. …
  • Credit history. …
  • Gift letters. …
  • Photo ID. …
  • Renting history.

Down Payment:

  • FHA loanDepending on property location and other, personal factors, you could qualify for a home loan from the Federal Housing Administration. In most cases, you’d be expected to make a down payment of approximately 3.5%
  • VA and USDA loansCertain veterans, active members of the military, and qualifying residents of designated rural areas can qualify for a 0% down-payment housing loan
  • Conventional: Depending on your credit score Conventional Loans have Down Payment requirements of as low as 3%.

 

Inspection:

  • The standard home inspector’s report will cover the condition of the home’s heating system; central air conditioning system (temperature permitting); interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows, and doors; the foundation, basement, and structural components.

Appraisal:

  • A home appraisal is an expert opinion of a home’s value and it ensures the lender that their loan will be well-spent, or at least up to par with the agreed selling price. Since the buyer is borrowing from the bank, they will cover the cost of the home appraisal.

Time Frame:

  • The entire mortgage process has several parts, including getting pre-approved, getting the home appraised, and getting the actual loan. In a normal market, this process takes about 30 days on average, says Fite. During high-volume months, it can take longer—an average of 45 to 60 days, depending on the lender.

Title Insurance:

  • Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. The vast majority of title insurance policies are written on land within the United States.

Closing:

  • The “closing” is the last step in buying and financing a home. The “closing,” also called “settlement,” is when you and all the other parties in a mortgage loan transaction sign the necessary documents.

 

5 Steps To Buying Your First Home

 

Step 1-  Getting Pre-Approved to Shopping for a Home

The BIG 3 elements in obtaining a Home Loan are :

  • Credit:  Knowing your credit score will not only help you but will also help your Mortgage company determine the BEST Program to fit your goals.  In this area, I strongly suggest using MyFico.  This company will provide you with your TRUE Credit Score that Mortgage Lenders use.  Its different than the FREE systems that provide you an Advantage Score.  The Advantage Score is a good educational tool but it is NOT the True Credit Score that your Mortgage Lender will be using.
  • Income:  Have your most recent pay stub with you along with your Previous TWO years Federal Tax Returns
  • Down Payment:  Your Down Payment is the amount of money that you have available to put down on the home.  In most cases, you will need from 3% – 5% of a Down Payment.  Gift Funds from a relative can also be used.
  • Lender: Using a Mortgage Broker in most cases can get you a better Interest Rate and it will also provide you with More Options:

Step 2-  Build Your Home Buying Team

  • Now that you have your Financing in place you will need a Full Time Experienced Real Estate Agent.
  • It is highly recommended to get a Real Estate attorney involved in the transaction to Protect you from issues such as errors in the Purchase Contract, negotiation if the home appraised value comes in less than the purchase price and also damage to the home prior to you taking possession of the home.
  • A Home Inspector is not a Requirement in the home buying process but it is also highly recommended.

Step 3-  Submitting Offer on Home

  • Once you and your Realtor have found the Home of Your Dreams you will submit an Offer on the home.  The offer is the Price that you are willing to pay for the home.  It also details any items in the home that you are requesting the seller to include.  The offer will also lay out a time frame on when you will be Closing on the home.  The closing is the day that you show up and sign all of the loan paperwork and take possession of the home.  Another section of the Contract will break down if you are seeking any Seller Concession or Home Warranty.

Step 4-  Completing the Loan Process

  • During this time you will work with your Lender, Processor, Insurance Agent as well as your attorney and Realtor to provide all documentation to satisfy your Loan application.  Common items that you will need to provide will be:
  1. Two Years of Tax Returns
  2. Two Recent pay stubs
  3. Two months of Bank statements on where your Down Payment money will be coming from
  4. LOX   Letters of explanation to things such as Credit inquiries, past due account, previous Bankruptcies, etc….
  5. Home Owners Insurance Binder
  6. A form of State or Federal ID

Step 5-  CLOSING

  • This is the time where all of you and your Teams Hard work pays off.  You will sign all of the Loan Disclosures and become a Proud HOMEOWNER